Smoke rising from an underground fire in Las Tablas de Daimiel National Park in Ciudad Real, Spain. Photograph: Mariano Cieza/EPA

They are meant to be Spain's most important inland wetlands, but yesterday the lagoons at Las Tablas de Daimiel national park were not just dry, they were burning. Stilted walkways stood on baked earth and rowing boats lay stranded on the ground. Observation huts revealed no birds, just an endless stretch of reeds rooted in cracked mud.

Only 1% of the park's surface remains wet, but the real catastrophe is happening underground. "If you see smoke it is because the dried-out peat under the ground has begun to self-combust," a park worker warned visitors. Occasionally, the fire breaks to the surface, sending up puffs of white smoke.

Scientists warn the wetlands are losing the lining that once retained water, with deep cracks opening up in the worst areas. Park authorities worry the damage may prove irreversible.

Park director Carlos Ruíz believes this is a life-or-death moment for one of Spain's 14 national parks. "We are at a point of no return," he said in a recent report. Spain's environment ministry, which runs the failing park, this week banned Ruiz from talking to the Guardian, but scientists who know the wetlands all agree on what is happening.

The aquifer which once fed the lagoons now lies 50ft below them. Farmers near the park have sunk thousands of wells, some 300ft deep, and have spent years pumping out more water than goes in. Furthermore, the Guadiana river, which used to flow into the Tablas de Daimiel, has disappeared.

"People have been warning that it was going to dry out for 20 years," said Luís Moreno of Spain's Geological and Mining Institute.

As the peat burns, an area that once trapped carbon dioxide has started releasing vast quantities of it. "We saw the first smoke in August but the fires must have been burning for a while," said Moreno. "It is a very difficult thing to control. It could burn for months."

Many worry the political will does not exist to save a park where the last few lagoons are still a refuge for egrets, coots and other waterfowl.

"Daimiel was once a paradise, with thousands and thousands of birds," said Santos Cirujano, of Spain's Higher Scientific Research Council. "If they want to save it, they can, but that requires a will to conserve it."

Environmentalists want Unesco to shame Spain by removing Daimiel and its surrounding area from the list of international biosphere reserves.

A plan approved two years ago to revive the aquifer by cutting down on irrigation is not working, environmentalists say, as local officials protect farmers. "Rather than fix the problem here, they use the Tablas [problem] to ask for more money and demand water be pumped in from elsewhere," said José Manuel Hernández, a local environmentalist who sits on the park's consultative board.

"There are thousands of families who live off agriculture in the area, and it is going to take time to change the way people farm," said José Luis Martínez, head of agriculture at Castilla La Mancha's regional government.

Spain's environment ministry this week pledged to pump water over from the Tagus river basin early next year. But the last time that was attempted, 95% of the water was lost along the way. Furthermore, in a country where water is fought over bitterly, the decision has provoked angry reactions from Tagus farmers.

Some scientists have predicted that Spain's thirsty agriculture cannot survive in the next decade, as aquifers are exhausted and global warming cuts rainfall. Last year, Barcelona was forced to import water in tankers to supply the city.

But Pepe Jimenéz, head of Spain's national parks, denied the situation in Tablas was irreversible. "We are buying up land around the park and buying water rights too," he explained. "The rate at which the aquifer is declining is slowing down but it will take time before it can provide water to the park."

Manuel Martín grows melons and giant pumpkins on a modest plot where the river Guadiana once sprung generously from the ground. Now the barren river bed is pitted with cracks and subsidence holes. Half a dozen water mills remain stranded along the banks. The land around, however, boasts huge, overhead "pivot" sprinklers for cereal crops.

"The lagoon here used to be full all year round but I haven't seen water since 1985," Martin said. "Our grandparents managed to irrigate their fields without making the water disappear. They should ban those pivot sprinklers until it comes back."